Rupee sees steepest weekly fall since 1995

The rupee suffered its steepest weekly fall since 1995 on concerns over European sovereign debt crisis and heavy selling by foreign institutional investors (FIIs).

The rupee on Friday hit a six-month low of 47.34 against the greenback. It fell 3.8 per cent during the week ended May 21 to 46.92. It had closed at 45.20 on May 14. According to Bloomberg data, this is the steepest weekly fall since October 1995.

Dealers said the rupee later recouped most of the day’s losses, helped by inflows related to 3G auction and reports about the government’s intention to raise the cap on FII investment in debt. The government is expected to earn about Rs 67,000 crore (about $14.8 billion) from selling 3G spectrum. At least half this money will be dollars. Exporters came to the rescue of the weakening rupee as they sold the greenback below the 47 per dollar level. Exporters sold dollars especially at 47.10-47.15, said a dealer with a small private bank.
 

CRASH COURSE
TOP 5 FALLS SINCE 1995

Week ended

Last
 priceWeekly
 change 20-Oct-9535.50-4.41 15-Sep-9533.55-4.19 28-Nov-9738.85-3.00 10-Oct-0848.47-2.99

21-May-10

46.92-3.80 Source: Bloomberg

Offshore forwards indicated the currency would trade at 47.33 in three months compared with expectations of 47.02 yesterday and 45.38 at the end of last week.

Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency. On an average, overseas investors sold stocks worth $101 million a day this month compared with net daily purchases of $111 million in April, data released by the Securities and Exchange of India show. Foreign exchange reserves shrank $6.3 billion in two weeks to May 14.

A sharp surge in dollar/rupee NDF (non-deliverable forwards) spurred arbitrage between local and offshore markets, which was a major reason the rupee was battered against the US currency, dealers said.

Rates in the non-deliverable forwards market rose sharply as investors drained investments from most Asian economies on risk aversion, dealers said.